Ghana Home Loans’ Brave Business Model Is Paying Off

Homegrown company spots niche gap in the market for Ghanaian middle class.

Ghana Home Loans was founded byGhanaians, Dominic Adu (CEO), Kojo Addo-Kufuor (COO), and Ellis Atekpe (Executive Director), who trained and worked in financial services in the UK before returning to Ghana.

As the only firm n the country working to a mortgage-only model, with the support of institutional shareholders Standard Bank, FMO, Broad Cove Partners, and then later, IFC, the three started up the business. Speaking to African Business Review, they explain how five years down the line the company has defied critics in operating successfully.

How did the business idea for Ghana Home Loans (GHL) come about?

The business idea is primarily based on a mortgage-only model that already exists in South Africa, but which we were repeatedly told would not work in Ghana due to various cultural and systemic issues (for example, Ghanaians are typically debt averse, with a preference to building a house rather than buying it, as well as there being various land title registry issues to overcome).

We identified a real niche to provide innovative mortgage solutions to address the needs of both resident and non-resident Ghanaians.

Despite the critics, we continue to see the opportunity posed by the emerging middle class in Ghana – the evolving economy would require a mortgage provider as a key element of wealth creation. We could see a way around the challenges, and have enjoyed year on year growth since inception and the continued backing of our shareholders and lenders as a result.

Can you explain the business model in detail?

The company operates as a non-bank financial institution that focuses exclusively on the provision of residential mortgages for existing and prospective homeowners.

It implements a classical mortgage only model which comprises arranging long term funding lines which are then used to originate residential mortgages with up to 20 year repayment schedules.

GHL’s First Time Buyer mortgage enables a borrower (or joint applicants) with verifiable monthly income of at least GHC550 (equivalent to US$326) to borrow at least $10,000 towards the purchase or completion of their dream home. Most new graduate hires into the private sector earn at least GHC800 a month.

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Ghana Home Loans also offers Equity Release mortgages to existing homeowners to expand or improve existing properties, invest in SMEs or finance other personal obligations Equity Release mortgages offer a critical source of financing to the self-employed who still constitute the overwhelming majority of the Ghanaian workforce.

Additionally, every mortgage that is written by Ghana Home Loans provides incremental, immediate, tangible benefits to other stakeholders such as insurance companies; government; estate developers, professional services and banks through the associated business they receive. By employing this world class financing structure and business model in the Ghanaian environment, we have demonstrated the potential for creating a sustainable middle class through homeownership.

What do you think are the problems Ghanaians face in the housing market? How do you see these issues being resolved?

Homeownership remains a dream for many Ghanaians, with official estimates of the housing demand shortfall at almost one million units. We believe we are helping to address this national challenge by offering the average Ghanaian an opportunity to finance the purchase of their home.

There are several issues faced by Ghanaians in the housing market, which GHL is working to resolve. Firstly, GHL recently addressed the widespread problem of partly completed houses with the Home Completion Mortgage which finances the all-important finishing steps of home construction. This product has been well received by the market, especially the non-resident Ghanaians who wish to build their ‘dream home back home’.

Secondly, we have also financed, thereby encouraging and endorsing the use of, alternative building materials such as steel frames, pre-fabricated panels, and bricks (to address the issue of expensive and often difficult-to-source building materials).

Thirdly, in response to the issue of rising house prices in Ghana, GHL has also been instrumental in the campaign to introduce the Deposit Guarantee Scheme in Ghana. This allows greater access for low income families to own their home by removing the need for the previously required 25 percent deposit.

Fourthly, there is the issue of the supply/demand dynamic. Low supply is a big problem faced by Ghanaians in the housing market as currently, Ghana is in the construction phase. As a result, GHL plays a liaison role in ensuring that long term lenders will supply funding to construction companies to fuel the supply side.

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Finally, a lack of market knowledge continues to be an issue. In response, we have organised a free Mortgage Clinic every Saturday morning, attended by the general public and real estate industry participants, where attendees receive free advice on how mortgages can be used to resolve their financing needs.

Has the company achieved as much as you thought it would in the first five years in operation?

As a company charting new territory, we did not have obvious milestones to achieve or competitors to compare ourselves against. Obviously we set ourselves high standards and would always say that we could have done more, but we are proud of the success we have had – attributed to all of our hardworking staff and the support of our shareholders and lenders. One of our most significant achievements is to have survived the global credit crunch, depreciation in the local currency of over 50 percent, the collapse of the international mortgage markets, and challenging capital market conditions all during its first five years of existence.

In 2011, we wrote $20 million of new loans for new homeowners. Our current portfolio stands at around $65m, providing mortgages to around 1,000 households in Ghana. GHL has already marshalled over $100m of long term funding from world class institutions to invest in addressing the acute housing shortage in Ghana, including most recently from Shelter Afrique – making GHL the first Ghanaian institution to benefit from its facilities.

What advice would you give to other African entrepreneurs starting their own business up?

Don’t give in to the nay-sayers, and be tenacious with your idea if you have fully researched it. With imagination and problem solving skills, it is very often possible to find an answer.